Friday, January 23, 2009

Follow-up Evaluation of the latest Turkish Nuclear Tender

Dear Energy Professional, Dear Colleagues,

Turkish Electricity Trading Public Company declared the long awaited electricity price of the sole bidder in the latest Nuclear power plant proposal, on 19th January 2009. The consortium, formed by Russia’s state-run Atomstroyexport, Inter RAO and Turkish Park Teknik, offered 20.79 (revised/ updated 21.16) US cents per kWh for the construction and management of Turkey's first nuclear power plant.

It is your writer’s sincere and humble feeling that the tender proposal was mismanaged by the Turkish partner of the Consortium, who was well aware of the local conditions, as well as the current prevailing local market prices.

The mismanagement wasn’t connected directly with the technical part of the Russian proposal – that is supposed to be acceptable, since the Turkish Atomic Energy Commission and the Public Evaluation Committee both have agreed and accepted the technical proposal.

Nevertheless, your humble writer still has reservations on quality of the industrial products of the Northern neighbor, and the sound project management of their industrial constructions.

In the end, the final JV price is considered to be too expensive compared to the prevailing other tender prices. One should keep in mind that the final price cannot be estimated upfront. We cannot compare the proposal price with other by American or European companies, since there is no other competitor.

Another reason why the financial part of the project isn’t easy to estimate is because nuclear power plant construction takes a long time – 5 years, 7 years, 10 years. One cannot estimate the future price based on today’s price – any calculation in this regard will be misleading.

It is just because one can’t compare nowadays price with the price in 15 years. Net Present Value (NPV) comparison is applicable to compare the other proposal prices. NPV cannot give you the prices 5-7-10 years ahead of present time, since Fuel prices are too volatile.

Today it may be 40 US dollars per a barrel of petroleum and tomorrow it may become 140 dollars. So you cannot estimate the price in 5 or 15 years ahead of present time based on any calculation of today’s price.

However we knew the other price as declared by local Park group in Afsin Elbistan C-unit coal fired thermal power plant proposal. It was 14.70 cents per kwh for first 5 years, and 16.50 cents per kwh afterwards.

In Afsin Elbistan, public authority has found that price too expensive and cancelled the tender. It is our wonder how the authority will find more expensive price appropriate in Nuclear tender.

Afsin Elbistan price was the upfront price to be escalated after the plant construction which is 4-5 years ahead of time. In Afsin Elbistan tender, it was open, fair, competitive race for all 30+ interested parties.

In the long run, Net Present Value (NPV) calculations / comparisons are not applicable to electricity prices in this high fuel price volatility.

Anyhow latest nuclear price is more expensive than the price in Afsin- Elbistan tender. It is a missed opportunity for the JV partners.

We have good business relations with our Northern Neighbor, and we do not wish to displease them. Anyhow it is our since feeling that there is no more risk left to displease our Northern neighbor with such an expensive, or should we say exorbitant or unreasonable price, in the end.

Your comments are always welcome.

Haluk Direskeneli is a Ankara-based Energy Analyst


Blogger Ardent said...

There are certainly many issues that the Turkish Government needs to consider.

3:12 AM  
Blogger Nevin said...

I agree with Ardent and I appreciate your well written and much needed articles that will further the energy needs of a developing country like Turkey!

I always read your work with a lot of curiosity... :)
keep up the good work Haluk!

4:35 PM  

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